Increase in the water rate enters into force as part of the Fiscal Plan for the PRASA Debt

Water Bill Increase Adds to Economic Concerns

As the Electric Power Authority’s Debt Adjustment Plan raises concerns about the impact on the economy, another increase in rates is set to take effect on July 1st. This time, it is due to the debt restructuring of the Aqueduct and Sewer Authority (PRASA).

Annual Increases in Water Bill

The PRASA Debt Fiscal Plan (PAD), approved by the Fiscal Oversight Board (JSF) in 2017, includes annual increases in the water bill until 2026. The next increase is scheduled for July 1st.

Gradual Adjustments for Improvements

Last year, the public corporation implemented a 4.95% adjustment to the base rate, along with an annual adjustment of 2% until 2027 for service improvements, infrastructure upgrades, and financial stability.

“As stated in the Fiscal Plan, a 2% adjustment in the service rate will take effect on July 1st. In the current fiscal year, we had a 4.25% increase in the base charge, but this year we will only see a 2% increase in consumption charges,” explained Doriel Pagan Crespo, the executive president of PRASA.

Minimal Impact Expected

Pagan Crespo anticipates that the new increase will have a smaller impact compared to the previous fiscal year. He emphasized that the percentage increase may not accurately reflect the actual cost for consumers.

“Sometimes our clients only focus on the percentage without considering the actual amount. To put it into perspective, 95% of our clients are residential, and for about 50% of them, the consumption is included in the base charge. This adjustment represents an increase of only 56 cents on their invoice,” Pagan Crespo clarified.

Rate Adjustments for Different Clients

The annual adjustments, as mandated by the PAD, vary for different types of clients. Residential clients will see a 2.5% increase, commercial clients 2.8%, industrial clients 3.5%, and government agencies 4.5%. These percentages are applied to the total bill each year.

Funds for Infrastructure and Debt

The revenue generated from these annual increases directly contributes to PRASA’s budget. It is allocated for operating expenses, debt payments, and capital investments to improve infrastructure.

“These revenues will enhance PRASA’s infrastructure and support day-to-day operations, which constitute a significant portion of the annual budget. They also contribute to debt payments and ongoing infrastructure investments,” Pagan Crespo stated.

Historic Moment for PRASA

Pagan Crespo highlighted the significant federal funds received by PRASA, amounting to approximately $2.5 billion. These funds are currently being utilized for over 229 active capital improvement projects across the island.

“As time goes on, the number of projects will continue to increase. Our goal is to see a rise in the number of active projects throughout the island, improving PRASA’s infrastructure,” Pagan Crespo assured.

Perfect Storm for Small and Medium Businesses

Lourdes Aponte, president of the United Retail Center (CUD), warns that the convergence of water service rate increases, projected electricity prices, and the rise in the minimum wage in Puerto Rico will create a perfect storm. Small and medium-sized merchants and local consumers will be the most affected.

“These supposedly temporary increases end up being permanent. The water service bill for merchants is already burdensome due to the charge for environmental and regulatory compliance (CCAR) established in 2017,” Aponte lamented.

Aponte emphasized that the cumulative effect of these increases could suffocate small and medium local businesses, paving the way for international chains to establish monopolies in Puerto Rico.

“Operating costs increases ultimately impact consumers, as businesses pass on the costs. With all the existing increases in the purchase of goods, products, and transportation, small businesses are struggling month by month, especially on an island where over 85% of what we consume is imported,” Aponte expressed concern.

Aponte concluded by highlighting the challenges faced by small merchants in competing with larger companies, stating, “The operation of small merchants will become increasingly difficult to sustain. We simply cannot compete on the same level as large corporations.”

He funds are also used to pay off the debt that PRASA has incurred over the years,” Pagan Crespo said.

Concerns About Economic Impact

While the rate increase may seem minimal for some consumers, there are concerns about the overall impact on the economy. Puerto Rico is already facing economic challenges, with high levels of unemployment and a struggling economy.

Many worry that these increases in utility bills will add to the financial burden of individuals and businesses, making it even harder for them to recover and thrive. The Electric Power Authority’s Debt Adjustment Plan has already raised concerns about the ability of businesses to stay afloat and attract investors.

The increase in water bills adds to these worries, as it puts additional pressure on already strained budgets. It remains to be seen how the economy will be able to withstand these challenges and recover from the impact of the debt restructuring plans.

What impact will the use of PAA funds to pay off PRASA’s debt have on the overall economy of Puerto Rico?

The use of Public Assistance Account (PAA) funds to pay off the debt of the Puerto Rico Aqueduct and Sewer Authority (PRASA) can have both short-term and long-term impacts on the overall economy of Puerto Rico.

Short-term impact:

1. Economic Stimulus: The immediate injection of funds into PRASA can boost economic activity in Puerto Rico. This could potentially create new jobs, enhance productivity, and increase consumer spending. It may contribute to the overall economic growth and recovery of the region.

2. Improved Infrastructure: Paying off PRASA’s debt through PAA funds may enable the authority to invest in infrastructure improvements, such as the modernization of water treatment facilities, maintenance of pipelines, and upgrading of systems. This could lead to better water supply and sanitation services, benefiting both households and businesses.

3. Creditworthiness: Clearing PRASA’s debt burden using PAA funds may improve Puerto Rico’s creditworthiness. This could enhance the region’s ability to attract external investments and access more favorable borrowing terms. It may also positively impact the overall perception of Puerto Rico among investors and creditors.

Long-term impact:

1. Fiscal Stability: By eliminating PRASA’s debt, the region’s overall fiscal stability may improve. This could lead to better financial management, reduced dependency on additional funding sources, and a lower risk of default. A financially stable PRASA could allocate resources to other developmental priorities, contributing to long-term economic growth.

2. Cost Savings: Clearing PRASA’s debt would eliminate the need for interest payments and associated costs. This could free up PAA funds for other purposes, such as infrastructure development, emergency preparedness, or social services. It may also result in cost savings for PRASA, potentially leading to lower water rates for consumers and businesses.

3. Investor Confidence: A debt-free PRASA could enhance investor confidence in Puerto Rico’s overall economic prospects. This could attract both domestic and foreign investments, leading to business expansions, job creation, and increased economic activity. Improved investor confidence could also benefit other sectors of the Puerto Rican economy.

However, it is essential to consider potential drawbacks, such as diverting PAA funds from their intended purpose, potentially leading to a shortfall in disaster recovery and preparedness efforts. The overall impact will depend on how effectively the PAA funds are managed, and the long-term sustainability of PRASA’s operations, which goes beyond debt reduction.